Commitments

9 Months Ended

May 31, 2023

Commitments and contingencies

Commitments

Note 8: Commitments

Operating Leases & License Agreements

Effective August 13, 2020, the Company entered into a non-cancelable seven-year lease for office space located in Miami, Florida, to house its principal executive offices commencing October 2020, and continuing through September 2027. The lease contains escalation clauses relating to increases in real property taxes as well as certain maintenance costs. The monthly rent expense under this lease is approximately $57,000. The Company has not made payments under the lease agreement since June 2022, see Note 9 Contingencies related to the legal case with the litigation with the landlord, Courvoisier Centre.

On October 1, 2020, the Company entered into a non-cancelable 64-month lease for industrial space located in Miami, Florida, to house ghost kitchens, production facilities, and certain marketing and technical functions, including those associated with ShiftPixy Labs. The lease contains escalation clauses relating to increases in real property taxes as well as certain maintenance costs. The monthly rent expense under this lease is approximately $35,000.

On June 7, 2021, the Company entered into a non-cancelable sublease agreement with Verifone, Inc. to sublease premises consisting of approximately 8,000 square feet of office space located in Miami, Florida, that the Company anticipates using for its sales and operations workforce. The lease has a term of three years expiring on May 31, 2024. The base rent is paid monthly and escalates annually pursuant to a schedule set forth in the sublease. Monthly rent expense under this lease is approximately $27,000.

On June 21, 2021, the Company entered into a non-cancelable 77-month lease for premises for office space located in Sunrise, Florida, that the Company anticipates using primarily to house its operations personnel and other elements of its workforce. The Company lease had possession date of August 1, 2022. The base rent is paid monthly and escalates annually pursuant to a schedule set forth in the lease. Monthly rent expense under this lease is approximately $27,000.

On May 2, 2022, the Company entered into a non-cancelable 60-month operating lease, as constituted in an amendment to a prior lease, commencing on July 1, 2022, for office space in Irvine, California, which the Company anticipates using primarily for its IT, operations personnel, and other elements of its workforce. The base rent is paid monthly and escalates annually according to a schedule outlined in the lease. The monthly rent expense under this lease is approximately $24,000. As an incentive, the landlord provided a rent abatement of 50% of the monthly rent for the first four months, with a right of recapture in the event of default.

On August 31, 2022, the Company decided to formally abandon the leases for its offices in the Courvoisier Center, including a sublease on the second floor with Verifone. The determination was based on its inability to utilize the premises as they were under extensive construction renovation by the landlord, resulting in a significant negative impact on the Company’s ability to conduct business and the health and well-being of the Company’s employees and guests. The Company formally notified the landlord of its intention to vacate the premises and has not been legally released from the Company's primary obligations under the leases. The Company received a formal complaint from the landlord, and the matter is in litigation. The Company intends to vigorously defend the lawsuit and counterclaim for relocation costs, see Note 9, Contingencies. As a result of the abandonment, the Company evaluated the ROU assets for impairment as of August 31, 2022, and recorded an impairment charge of $3.9 million, within the impairment loss line item for the year ended. Furthermore, the Company released the corresponding lease liability and evaluated the need for a loss contingency in accordance with ASC 450, recording a contingent liability of $3.8 million, included within accrued expenses of the consolidated balance sheets as of May 31, 2023 and August 31, 2022, respectively.

The components of lease expense are as follows:

	Three Months  Ended May 31, 2023		Nine Months Ended May 31,  2023
Operating Lease Cost	$	260,000	$	824,000

Future minimum lease and licensing payments under non-cancelable operating leases as of May 31, 2023, are as follows:

	Minimum lease commitments
2024	$	1,047,000
2025		1,081,000
2026		928,000
2027		694,000
2028		403,000
Thereafter		225,000
Total minimum payments		4,378,000
Less: present value discount		508,000
Lease liability		3,870,000
Weighted-average remaining lease term - operating leases (months)		49
Weighted-average discount rate		5.54	%

The current portion of the operating lease liability is included within our accounts payable and other accrued liabilities in our condensed consolidated balance sheets.

Special Purpose Acquisition Company Sponsorship

On April 29, 2021, the Company announced its sponsorship, through a wholly owned subsidiary, of four SPAC IPOs. The Company purchased founder shares in each SPAC (the "Founder Shares"), through its wholly owned subsidiary, for an aggregate purchase price of $25,000 per SPAC. The number of Founder Shares issued was determined based on the expectation that such Founder Shares would represent 15% of the outstanding shares of each SPAC after its IPO (excluding the private placement warrants described below and their underlying securities).

The registration statement and prospectus covering the IPO of IHC, was declared effective by the SEC on October 19, 2021, and IHC units (the “IHC Units”), consisting of one share of common stock and an accompanying warrant to purchase one share of IHC common stock, began trading on the NYSE on October 20, 2021. The IHC IPO closed on October 22, 2021, raising gross proceeds for IHC of $115 million. In connection with the IHC IPO, the Company purchased, through its wholly owned subsidiary, 4,639,102 placement warrants at a price of $1.00 per warrant, for an aggregate purchase price of $4.6 million. Each private placement warrant was exercisable to purchase one whole share of common stock in IHC at $11.50 per share. Inasmuch as IHC was dissolved on November 14, 2022, and the Trust released all the redemption funds to shareholders on December 1, 2022, effectively liquidating the Trust Account, (See Note 4: Special Purpose Acquisition Company ("SPAC") Sponsorship), the private placement warrants have been deemed worthless.

The investment amounts set forth above do not include loans that the Company's subsidiary, ShiftPixy Investments, Inc., has extended to IHC in an amount not to exceed $0.5 million, in its role as sponsor. Nor do they include sums advanced by the Company to IHC to enable it to conduct its activities. As of May 31, 2023, the Company had advanced, through its wholly owned subsidiary, an aggregate of approximately $0.9 million to the SPACs for payment of various expenses in connection with the SPAC IPOs, principally consisting of SEC registration, legal and auditing fees. The Company previously disclosed that it anticipates that the SPAC will repay these advanced expenses from when its IBC is completed. As of May 31, 2023, the Company had an outstanding balance of $0.7 million from advances, which are considered uncollectible with the dissolution of IHC.